Value-Add

Value-add deals typically feature below-market rents, above-market vacancy, deferred maintenance, or operational inefficiency that a buyer believes it can correct — through capital improvements, more effective leasing, or better management — to raise NOI and, on exit or refinance, realize a higher valuation than the going-in cap rate implied.

The strategy's return depends on execution more than on the acquisition price alone: underwriting has to model the capital required, the time to stabilize occupancy and rents, and the exit cap rate (which is often assumed to be similar to or slightly wider than the entry cap rate as a conservative check on the projected value creation).

Former or underutilized industrial buildings — including cannabis facilities being repositioned to conventional use, or distressed retail being reconfigured for a new tenant mix — are common Michigan value-add targets; the diligence emphasis shifts from verifying stable in-place income (as in a core deal) to sizing the capital and leasing risk required to get there.